As the film opens, Woody is filled with anticipation for Cowboy Camp, a special occasion dedicated solely to him and Andy. However, disaster strikes when Andy inadvertently tears Woody's arm, and unable to fix it, he decides to leave Woody behind as he heads off to camp. The following day, chaos ensues as Andy's mother organizes a yard sale, prompting panic among the toys that they might end up being sold. The real threat, however, is to a little squeaky penguin named Wheezy, who is in desperate need of help due to a broken squeaker. Woody, ever the hero, calls Buster, Andy's dog, to assist in saving Wheezy, but in doing so, Woody finds himself outside and is soon captured by Al McWhiggen, the unscrupulous owner of Al's Toy Barn.
When Andy’s mom quickly determines that Woody is not for sale and claims him back from Al, it seems Woody is safe. However, when she turns her back, Al seizes the opportunity to snatch Woody and disappears. From the safety of Andy's room, Buzz Lightyear sees what has happened and rushes out to rescue his friend, just in time to see Al’s vehicle depart, leaving behind a feather and a license plate reading LZTYBRN. Back in Andy’s room, the toys, led by Buzz, analyze the situation and use Mr. Spell to decode the license plate, concluding that their friend is trapped at Al's Toy Barn.
Meanwhile, Woody is in a strange apartment, where Al leaves him alone with three other toys: a horse named Bullseye, a cowgirl doll named Jessie, and an in-the-box doll known as the Prospector. The trio is thrilled to meet Woody, an unexpected guest who doesn’t yet grasp their backstory. They take him on a tour of Al's apartment, revealing that Woody was once the star of a hit show called Woody's Round-Up. Concurrently, at Andy’s place, the other toys are on a mission to track down Woody. They spot a television commercial for Al's Toy Barn and organize a rescue party consisting of Buzz, Potato Head, Hamm, Rex, and Slinky Dog. Buzz promises they will return safely before Andy returns from camp.
As Woody immerses himself in nostalgic reruns of Woody's Round-Up, he learns that the rest of the collection, alongside the toys, is destined for the Kinishi Toy Museum in Tokyo. Faced with this troubling news and filled with dread about leaving Andy forever, Woody refuses to go. The Prospector serves as the voice of doubt, arguing that Andy will eventually outgrow him, leaving Woody to be discarded like Jessie, who is visibly shaken by the thought.
When Al returns to take photos for the museum, he inadvertently damages Woody, causing him distress. Later, while Al falls asleep in front of the TV, Woody plots to retrieve his severed arm from Al's pocket. However, a conflict arises when Jessie mistaken for a scoundrel gets into an altercation with Woody, only to be interrupted by the Prospector.
The next morning, Buzz and the rest of the team finally arrive at Al's Toy Barn, splitting up to locate Woody. Buzz's adventure leads him to the aisle filled with Buzz Lightyear merchandise, where he encounters a version of himself that believes he is the genuine space ranger. Misunderstanding the situation, this deluded Buzz captures the real Buzz and takes him along, leaving Buzz unable to rejoin his friends.
Back with Woody, the toy cleaner arrives to fix him up, restoring his arm and polishing his paint job. Despite being refurbished, Woody feels torn between the allure of fame represented by the Prospector and the loyalty to Andy. Jessie shares her heart-wrenching story of being loved and then abandoned by her owner, Emily, leaving Woody to contemplate his future. In a touching moment underscored by “When She Loved Me” by Randy Newman, Woody empathizes with Jessie's plight but remains determined to return to Andy.
Time passes, and Woody finally meets Buzz and the gang again as they attempt to rescue him from Al's grasp. Woody, while confessing his desire to go to Japan, hears Buzz's passionate plea reminding him of their purpose as toys — to be played with and loved by children.
The narrative twists and turns as Woody's fate hangs in the balance, and the tension escalates when the crew tries to break into Al’s apartment to save him. After a series of wild escapades, which include confrontations with the Prospector and Zurg, Woody is resolute in his decision to return to Andy, ultimately breaking free with the group’s help.
After a thrilling airport chase involving a stolen delivery truck, they manage to navigate through the chaos until they finally reach the baggage area. With challenges and obstacles, Woody and Jessie's resilience shines as they escape the clutches of the Prospector and his vendetta against children’s fickle affections.
When Andy finally comes home, he joyfully discovers his toys once again with some fresh additions. Woody, with his arm patched up, feels a surge of happiness as he witnesses Wheezy being repaired and celebrating their friendship in song. As the toys gather around, Woody reflects on the future, noting, > "Nah. It'll be fun while it lasts," offering a touching camaraderie with Buzz.
Their adventure concludes with Woody and Buzz affirming their bond, echoing eternal friendship with: > "To infinity, and beyond," as they embrace a new chapter together with their beloved friends.
